You will definitely have an issue with the ATI Radeon Xpress. I had one in one of my systems (a Dell laptop, same RAM as you) and it just could not produce a decent framerate. It will drive you nuts in the end. 5 fps at times is just no fun.
FPSC runs fine on XP, Vista, and Windows 7. Mind you, it depends on what you have on that system. I run v1.17 on my Acer laptop (4 GB RAM, Win7 64bit, dual core, AMD Radeon HD 6250) with high framerates and no issues. Our desktop is runs v1.17 (quad core with 2 GB RAM, Vista 32bit and an ATI Radeon HD 4650) and is smooth as well. I've tested v1.18 and it also had no issues.
However, designing a level(s) using segment rooms may not be an issue for you at first. Adding characters and such, or designing an outdoor level changes everything. Add the shaders and extra goodies and yes you will start to see a performance drop.

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